3 Takeaways From Trendwatch 3Q 2013

Third quarter performance data highlights opportunities and success in the credit union industry.

Every quarter, Callahan & Associates hosts a review of 5300 Call Report performance data that gives context to the industry’s successes and challenges. Trendwatch attendees walk away with an understanding of the industry’s role in the larger sphere of financial services as well as strategies to strengthen their own position in the credit union market. Callahan EVP Jay Johnson and chairman Chip Filson hosted the first of two webinars on Wednesday. Dwight Johnston, chief economist for the California and Nevada Credit Union Leagues, and Mary Beth Wilcher, CEO of Erie Federal Credit Union, joined the call. Here are three key takeaways from the day’s event:

1) The Mortgage Environment Is Changing

According to Dwight Johnston, the Fed will likely taper its quantitative easing within the first few months of 2014, causing rates to rise. As rates increase, refinances will shrink, and credit unions will need a mortgage strategyin place that accounts for the different way of thinking that purchase mortgages require. According to year-to-date first mortgage origination data, credit unions are well on their way to adapting to this new environment. As of September 30:

  • Credit unions have originated $96.6 billion in first mortgages and, according to the Mortgage Bankers Association, have captured 6.8% of the market share.
  • That $96.6 billion is an 8.2% increase from YTD 2012, when credit unions originated $89.3 billion.
  • It’s also the highest volume ever for credit unions for the first nine months of the year.
  • Together, credit unions and mortgage CUSOs hold 8.29% of mortgage applications, 7.43% of funded loans by number, and 5.77% of funded loans by dollar amount, according to Callahan’s Mortgage Analyzer. These are all increases over 2011 totals.

2) Consumer Lending Is Growing

Consumer lending, once the bedrock of the credit union balance sheet, is poised to rebound, so credit unions need to build on their old sweet spot. According to Peer-to-Peer data, as of September 30:

  • Consumer loans grew 3.1% year-to-date.
  • Consumer loans made up $135.9 billion, or slightly more than half of credit union loan originations.
  • New and used auto loans outstanding have increased 12.2% and 10.3% respectively.
  • Credit card lending has increased 8%; there are now more than 14.9 million active credit union credit card accounts.
  • Over the past five years, credit unions have grown credit card market share by 50%; bank market share has shrunk.

3) Regulatory Burden Will Continue

Liquidity rules, stress and shock tests, and attention to interest rate risk are just some of the regulatory changes that are aimed at maintaining credit union solvency should another economic downturn hit. Fortunately, credit unions’ balance sheets are well positioned to handle a new interest rate environment.

  • Rising long-term rates + steady shorter-term rates=a more stable future for credit unions with auto, MBL, and credit card loans. However, even credit unions with mortgages and other longer-term loans can find shelter in core deposits.
  • Core deposits make up 70.1% of total deposits, so although rates might rise, the majority of members are unlikely to move their money.
  • Cash a key indicator that credit unions are well positioned against interest rate risk accounts for 23% of the portfolio.
  • NCUA’s fears and precautions against a rising rate environment might be overstated.

If you missed Trendwatch on Wednesday, do not fear. Tune in for another live Trendwatch presentation today at 11:30 a.m. (EST). Click here to REGISTER NOW.

November 14, 2013

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